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The Weekly Wrap, February 16, 2024

The bumpy road home

By Mark Parsons, ATB Economics 16 February 2024 9 min read

In this week’s ATB Economics Weekly Wrap…

  • Rate resiliency - Alberta housing market tightens
  • Start me up - Momentum on home construction 
  • The bumpy road to target - U.S. inflation
  • Next week: Canadian inflation
  • Final 2023 tally - Manufacturing sales in Alberta
  • Interesting Fact: Grande Prairie to host Alberta Winter Games this weekend 
  • Chart of the Week: Alberta’s exports to the U.S. - Where do they go?


“Country roads, take me home, to the place I belong…”

—Bill Danhoff, Taffy Nivert and John Denver

On long road trips, my family will blast John Denver’s classic “Country Roads.” I’m told I sing too loud and slightly (my word) out of tune. I disagree.

The song has been running through my mind as of late. The road back home to 2% inflation is winding and uncomfortably bumpy. The U.S. hit a bump this week with higher-than-expected inflation, and Canada’s road to target has also been rocky. We’ll have to be patient for that first interest rate cut in Canada—mid-year (possibly summer now) is our current view.

Speaking of homes, Alberta is building more of them. But the market has tightened significantly amid the influx of migrants. Prices are going up.

This week’s ATB Economics Wrap focuses on housing. Our Chart of the Week is a map—two of them, showing where exactly Alberta sends its exports south of the border.

Winter heat - housing market tightens

Alberta’s housing market continues to draft through interest rate headwinds, driven by record migration and solid job gains.

Let’s start with prices.

Benchmark resale home prices in Alberta rose for the 14th consecutive month, hitting a new high of $496K in January. Meanwhile, national prices dipped for the 5th consecutive month to $718K, approaching their March lows.  

  • Calgary has been the outlier since the Bank of Canada started cranking up its policy rate in March 2022. It is the only large city over one million people where prices have actually increased since rates started going up. Calgary benchmark home prices rose 10% year-over-year (y/y) to $569,400 in January.
  • Edmonton housing prices are also creeping higher, but have lagged Calgary—up 2.7% y/y to $378,900. As a result, the Calgary-Edmonton gap has continued to widen. A stronger starting point on inventories—particularly apartments (where benchmark prices are still below 2007 levels)—has helped the city absorb new migrants. Still, its rental vacancy rate fell to 2.4% last year vs. 1.4% in Calgary.
  • Elsewhere in the province, we don’t have benchmark prices (which control for quality and improve comparisons), but average sale prices are up in the other nine regions tracked by the Canadian Real Estate Association (CREA) relative to January 2023 with the exception of Grande Prairie (which was flat). 
Benchmark home prices in Alberta have increased despite higher interest rates

Benchmark home prices in Alberta have increased despite higher interest rates

Alberta home sales paused (+0.1%) last month on declines outside the two largest cities compared to a 3.7% national increase. But sales have bounced off their early 2023 lows, rising 29% over the last 12 months (vs. 18% nationally). As interest rates move lower in the second half of the year, we expect many prospective buyers will move off the sidelines.

Inventories are trending lower. A friend and fellow economist, who tracks real estate for a living, tells me to pay close attention to months of supply—they follow prices closely. In Alberta’s case, that is definitely true (see chart). The months of supply of homes declined to 2.4 (i.e. average months on market), well below the ten-year average of 5.3. That’s getting close to February 2022, but not quite at the ultra tight market in 2006 when months supply sank to an unbelievable 1.2 in the spring! Alberta supply is lower than any other province, with Canada sitting at 3.7 months.

Another indicator—sales to new listings—points in the same ‘tight’ direction. It jumped in Alberta last month to 0.79 as listings plunged. That’s the highest ratio since February 2022, and far in excess of the 0.58 nationally. Calgary is especially high (0.88), but the vast majority of Alberta locations tracked by CREA are in seller’s market territory of 0.6+.

The months of supply of homes in Alberta was 2.4 in January 2024

The months of supply of homes in Alberta was 2.4 in January 2024

Interprovincial migration expected to continue

Relative housing affordability has been a major driver of interprovincial migration to Alberta. Will the narrowing housing price gap slow population inflows? Maybe, but Alberta benchmark prices are still $222K lower than the national average in January, with the gap particularly large relative to BC and Ontario—the origin of the vast migrants to the province in the last year. While asking rents in Alberta have soared, they are still lower on average than in other Canadian markets outside Saskatchewan and Manitoba according to

As interest rates ease, relative housing affordability will not have the same pull as before.  But we do expect interprovincial migration to stay strong, and the latest data suggest no signs of slowing yet. Much also depends on the relative health of the labour market. While the unemployment rate remains higher in Alberta than nationally, job growth has been persistently stronger. Our December forecast had net interprovincial migration of 25,000 in the census year (ending July 1, 2024), but we’re looking to revise that higher by at least 10,000 based on strong results to date. Last census year came in at 56,200, a record.

Remote workers may also be playing a role. The stats are sparse and dated, but we have some clues coming out of the Labour Force Survey. Nationwide, 179,000 Canadian employees reported to an employer outside their home province in mid 2022, up from only 12,600 in 2016. The Prairies and Atlantic provinces have the highest share of at-home workers reporting to another province.

Relatively more affordable housing options in Alberta may be contributing to higher levels of net interprovincial migration

Relatively more affordable housing options in Alberta may be contributing to higher levels of net interprovincial migration

More people, more homes…but construction help wanted

Can homebuilders keep up to soaring demand? Last year the population ballooned by 184.4K—a 4.1% gain. That translates into approximately 60-70K new households depending on assumptions around household size.*

Given the constraints—labour shortages, rising construction costs and higher interest rates—the construction industry has shifted to overdrive. In the first quarter of 2023, housing starts averaged 28K annualized. In the fourth quarter, that number jumped to 43K—an impressive feat.

To kick off the year, housing starts eased to 41.2K (annual rate) in January, with a jump in Calgary on the multi-unit side largely offsetting a pullback in Edmonton.

Not bad given the circumstances, but still not enough. Our current view is that housing starts will total around 40K  this year, which still has the industry playing demographic catch-up. For context, the 20-year average on Alberta starts is 33K, with a peak in 2006 (49K) and a low in 2009 (20K).

But workers are needed to keep pace. As of the third quarter of last year, there were 14,035 job vacancies in Alberta’s construction industry - the highest on record.

*According to the latest census, the average number of people per private household in Alberta was 2.6. This gives just over 70K new households.  Accounting for larger average household size of new migrants may lower that number - hence the range.

Down south - Sticky inflation and a potential delay to rate cuts

The U.S. economy has hit more bumps in its winding route back to 2% inflation.

The country is in the midst of a potential Goldilocks scenario—getting back to target inflation with a moderating, but still-vibrant economy. Inflation has been trending lower, even as the U.S. labour market remains hot and economic growth resilient.

But not so fast. Markets didn’t really like the January CPI report, with the Dow plunging the day of the release (though stocks have since rebounded). The annual inflation rate came in at 3.1% y/y—the consensus was 2.9%. Core inflation—excluding food and energy—remained elevated and unchanged.

All told, it may take a little longer than originally hoped for the Federal Reserve to pivot to lower rates. As in Canada, shelter costs are proving to be part of the problem and Red Sea conflict poses a new inflation risk. The markets had priced in a May cut a week ago, now it’s June according to CME FedWatch.

Next Week - Canada CPI for January

Canada’s own inflation road has been bumpy, and we’ll find out on Tuesday what happened in January. The annual inflation rate nudged up to 3.4% in December. Shelter costs have become the new thorn in the inflation side. Gasoline prices added to the annual inflation rate in December, but will subtract in January. All eyes will be on core inflation, which has been sticky. We’ll need to see progress on that score before the Bank cuts.

Either way, a March rate cut is not anticipated, and even April seems early. We had penciled in June (no rate announcement in May), but are starting to lean towards July given the fourth quarter improvement in GDP growth and some resiliency in the labour market last month. A July cut would also allow the Bank to communicate its decision with a new set of forecasts.

Manufacturing sales - Another good year, but shy of 2022 record

It was close, but Alberta manufacturing shipments couldn’t match 2022 record levels last year. The final tally was $104.2 billion, down 4.0% from the previous year primarily due to lower prices for petroleum, chemical, and wood products.

As part of Canada Agriculture Day this week, we highlighted that food manufacturing has soared in Alberta, with sales hitting a record $24.4 billion in 2023—that’s up from $14.7 billion in 2019.

Petroleum products are the largest manufacturing category ($28 billion), with chemicals ($15 billion) in third behind food.

There were notable 2023 gains in fabricated metal shipments (+17% to $7.6 billion) and machinery manufacturing (+28% to $7.9 billion), while wood products dipped (-32% to $4.7 billion) after two record setting years.

Interesting Fact: The Alberta Winter Games will take place in Grande Prairie, Alberta over the Family Day long weekend (February 16 to 19). The event will bring over 2,600 athletes aged 11 to 16, coaches, and technical officials to the city. In the summer 2023,  Okotoks and Diamond Valley hosted the Alberta Summer Games. Best of luck to Alberta’s young athletes!

Chart of the Week: Alberta’s largest export markets - Illinois (oil and gas) and Texas (everything else)

Alberta is a trading province. Last year, the province recorded its second highest (after 2022) international merchandise exports on record at $175 billion.* That represents 25% of Canadian goods exports, more than twice Alberta’s share of the national population. And that doesn’t include service exports and sizable interprovincial exports.

The vast majority of Alberta’s merchandise exports flow to the U.S. In 2023, the share was 89%. That’s roughly in line with the 10-year average (88%).

Where in the U.S. do Alberta’s exports go?

Illinois is by far Alberta’s largest export market at $65.1 billion last year. For comparison,  shipments to China—Alberta’s second largest (country) export market—were $5.5 billion last year. In fact, Alberta’s merchandise exports to Illinois were higher than total international goods exports from any other province except Quebec and Ontario.

Illinois is home to major refinery centers in the U.S. Midwest, where most of Alberta’s oil is shipped primarily via the Enbridge Mainline System. Rounding out the top five are Washington ($12.9 billion), Texas ($12.8 billion), Minnesota ($9.1 billion), and Oklahoma ($8.9 billion).

Excluding exports from the oil and gas and refinery industries, trade patterns look different. In that case, Texas is the number one state for exports at $4.7 billion and California second ($3.0 billion). Major non-oil and gas exports to the Lone Star State include machinery, chemicals/plastics, and meat.

*In this section, we use domestic merchandise exports, which exclude re-exports.

About 42% of Alberta's merchandise exports to the U.S. went to Illinois in 2023

About 42% of Alberta's merchandise exports to the U.S. went to Illinois in 2023

When oil and gas extraction and petroleum refinery exports are excluded, Texas emerges as the state to which Alberta exported the most goods in 2023

When oil and gas extraction and petroleum refinery exports are excluded, Texas emerges as the state to which Alberta exported the most goods in 2023

Answer to the previous trivia question: Bandit (played by Burt Reynolds) drives a 1977 Pontiac Firebird Trans Am in the action comedy film Smokey and the Bandit.

Today’s trivia question: Which U.S. state is the most populous?

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